Following the March 9 rebuff from CF Industries Inc.’s board of directors to its Feb. 25 buyout proposal, Agrium Inc. on March 16 decided to take the $3.6 billion offer directly to CF shareholders. Agrium commenced an exchange offer on that date for all outstanding shares of common stock of CF Industries Holdings Inc., providing for the same cash and stock consideration that was previously rejected by CF’s board.
Under the offer, CF shareholders would receive $31.70 in cash and one common share of Agrium for each CF share. CF stockholders would also have the option of receiving for each CF share either 1.7866 common shares of Agrium or $72 in cash, subject to proration. In a March 16 statement, Agrium said not more than 44 percent of the shares tendered will be exchanged for cash, and not more than 56 percent will be exchanged for Agrium common shares. The company said the offer and withdrawal rights would expire at midnight New York City time on May 19, 2009, unless extended.
“CF’s refusal to engage in discussions with Agrium left us with no choice but to take our offer directly to CF stockholders,” said Agrium CEO Mike Wilson. In a March 9 letter to the Agrium board, CF had called Agrium’s initial proposal grossly inadequate, opportunistic, and a transparent attempt to interfere with CF’s proposed business combination with Terra Industries Inc. (GM March 16, p. 1).
“We believe the Agrium offer is a far superior alternative for CF stockholders as they receive a premium rather than pay a premium to Terra stockholders,” Wilson said. “We are committed to this compelling combination and urge CF stockholders to send a message to the CF board by tendering their shares into the Agrium offer.”
Wilson added that Agrium would be prepared to increase its offer if the CF board and management could demonstrate additional value arising from the combination of the two companies.
The unfolding drama involving the three companies began in mid-January when CF submitted its original offer for Terra, valuing Terra at $2.1 billion and Terra shares at $20 per share (GM Jan. 19, p. 1). Terra rejected the offer on Jan. 28 (GM Feb. 2, p. 1), saying it did not create additional value for shareholders and substantially undervalued Terra on an absolute basis and relative to CF.
CF’s bid for Terra then turned hostile, with CF declaring on Feb. 3 that it would nominate independent directors to replace three members of Terra’s board at Terra’s 2009 annual stockholders meeting, and that it was also planning to commence an exchange offer for all of the outstanding shares of Terra common stock at the same exchange ratio specified in CF’s Jan. 15 proposal (GM Feb. 9, p. 1). CF commenced the exchange offer on Feb. 23, and Terra issued a press release advising its stockholders to take no action with respect to the offer.
Agrium then jumped into the fray on Feb. 25 with its bid for CF, saying the offer was contingent on CF terminating its bid for Terra (GM March 2, p. 1). CF rejected the Agrium offer on March 9 and upped the ante for Terra, agreeing to an exchange ratio based on $27.50 for each Terra share, above its initial offer of $20 per share.
Terra, however, wasted no time in rejecting CF’s second offer. On March 11, Terra said its board had unanimously concluded that CF’s updated proposal continues to run counter to Terra’s strategic objectives, substantially undervalues Terra both absolutely and relative to CF, and would deliver less value to its shareholders than would owning Terra on a stand-alone basis (GM March 16, p. 1).
CF announced on March 19 that it had voluntarily withdrawn its notification made on Feb. 18 with the Federal Trade Commission (FTC) and U.S. Department of Justice in connection with its proposed acquisition of Terra, and that it plans to refile on Monday, March 23. CF said the withdrawal and refiling of its premerger notification is a customary step in the regulatory process to allow the FTC more time to review the information submitted by CF and Terra. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, antitrust regulators are required to review pending acquisitions. CF said it remains confident that the transaction will be approved in all relevant jurisdictions.
While the three companies continue to maneuver, the rest of the industry is pondering what would result from any of the proposed combinations. And some retailers are voicing concerns about Agrium’s play for CF.
In a March 16 letter to Agricultural Retailers Association President and CEO Jack Eberspacher and the ARA executive committee, one member voiced his strong opposition to the deal on behalf of “many ARA members,” saying he believed “the so called ‘synergies’ that are projected to accrue as a result of the Agrium/CF merger will largely come at the expense of the American farmer and his traditional retail supplier.”
“Over the last ten years we have witnessed considerable consolidation amongst fertilizer manufacturers,” the letter said. “The majority of these mergers were viewed as being necessary by the merging partners as well as their customers. However, we have now reached a point where further consolidation is no longer required to insure survival nor welcomed by those being swallowed up. Consolidation is now occurring to create an even more captive marketplace and further improve shareholder returns at the expense of the farmer and others in the supplier chain.”
“Fertilizer manufacturers have already amassed unprecedented earnings and pricing power as a result of their earlier consolidation,” the letter continued. “While amassing this leverage they have simultaneously downloaded much of their former price risk to the supply chain and to farmers. Further consolidation will allow fertilizer manufacturers more freedom to dictate the price and terms of fertilizer movement and will leave farmers and retailers exposed to increased risk while handling and using a commodity that cannot be easily hedged.”
The letter goes on to say that while American agriculture is a competitive venture and the survival of any business is not guaranteed, “we must see to it that retailers and farmers are never forced into becoming captive customers.” The letter said some retailers “are fearful that the fertilizer companies could retaliate against them or that they may drop their membership if we object to further consolidation.”
In response to this and other inquiries from concerned members, ARA told Green Markets on Thursday that it is “currently conducting a thorough review of the potential ramifications from further consolidation in fertilizer manufacturing.”
Others in the industry are taking a more resigned view. “If they got enough cash, it doesn’t matter,” said one in regard to Agrium’s bid for CF. “Just let me know who I’m supposed to be dealing with now.”
CF said on Monday that it would file the required Schedule 14D-9 with respect to the Agrium offer within 10 business days. Morgan Stanley and Rothschild are acting as financial advisors, and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel to CF Industries. On Agrium’s behalf, RBC Capital Markets is acting as dealer manager; Paul, Weiss, Rifkind, Wharton & Garrison LLP and Blake, Cassels & Graydon LLP as legal counsel; and Georgeson Inc. as information agent in connection with the offer.